One of the questions I am often asked by the companies that I work with – “do we need a formal pricing strategy for every competitive opportunity that we pursue?” The answer is not straightforward and depends on a number of factors including the nature of their business, the strategic importance and complexity of the opportunity, and the market dynamics within their industry.
The Pros of Incorporating a Formal Pricing Strategy for Every Opportunity
Consistency and Clarity
A formal pricing strategy offers a structured approach to pricing an opportunity, ensuring that your decisions are consistent and aligned with your company’s broader financial and strategic goals. This consistency aids in long-term planning and resource allocation, providing a clear operating framework for your company. It also enables transparency and the ability to demonstrate fair and reasonable pricing for your products or services, which can strengthen your relationships with clients by demonstrating your commitment to integrity and fairness (which is particularly critical for those operating in the public sector).
Competitive Edge
In highly competitive markets, a formal pricing strategy can be a significant differentiator. It allows you to systematically assess your costs, your value proposition, and how you compare to competitors, enabling you to position your bids more strategically. Whether through cost leadership or by highlighting unique value propositions that can justify higher prices, a formal strategy empowers you to make informed decisions that enhance your competitiveness.
Risk Management
Every bid carries with it a degree of risk. Pricing too low can erode margins and potentially compromise the quality of the work delivered, while pricing too high may make you non-competitive. Leveraging a pricing strategy can act as a safeguard, ensuring that your bids reflect a thorough understanding of costs, market conditions, and customer expectations, thereby minimizing financial risks and enhancing the sustainability of your business.
The Cons of Incorporating a Formal Pricing Strategy for Every Opportunity
Flexibility
The primary argument against a formal pricing strategy for every opportunity is the need for flexibility. Markets are dynamic, and customer needs can be highly specific and varied. Adhering too rigidly to a pricing strategy might limit your ability to adapt to unique opportunities or to tailor your proposals to meet the specific needs and constraints of different customers.
Limited Resources
Developing and maintaining a formal pricing strategy for every procurement response can be resource intensive. For small or medium-sized businesses or companies in fast-moving industries, the amount of time and effort required to keep pricing strategies up-to-date and relevant for each opportunity can be prohibitive, diverting valuable resources away from other critical areas of the business. Prioritizing which opportunities will need a formal pricing strategy can ultimately lead to a higher overall pWin.
Innovation and Creativity
Finally, adhering too strictly to a formal pricing strategy might stifle innovation and creativity in crafting your proposals. The ability to think creatively and propose innovative pricing models or value propositions can be a key factor in winning bids, particularly for opportunities that use a best value tradeoff evaluation model.
Conclusion
Deciding whether or not your company needs a formal pricing strategy for every competitive procurement response depends on balancing the benefits of consistency, competitive edge, and risk management against the need for flexibility, the resource implications, and the potential to innovate. For most companies, a middle ground that combines a broad strategic pricing framework based upon a prioritized opportunity hierarchy, with the flexibility to adapt to specific opportunities, may offer the best approach. This allows for strategic consistency where it adds value, while maintaining the ability to respond to the unique challenges and opportunities presented by each procurement opportunity. Contact us to learn more!
